POST WRITTEN BY

Expert Panel, Forbes Real Estate Council

Investing in a building requires the investor to do a little digging and to pay attention to the details. Older buildings can be potential treasure troves, but people need to look over the property critically, as not all old buildings are worth the investment of time, energy or funds.

To find out more about what to watch for, members of Forbes Real Estate Council, below, discuss the critical elements investors need to look at when contemplating investing in an older property. Here’s what they said:

1. Flexibility

Lines between living and working continue to blur, so the less “use-specific” the building, the better. In an older building, particularly one that is 40-50 years old, not 150 years old, multifunctionality is key. Is it zoned for multiple use types? Can it be senior care or service retail? Are there multiple utility systems in place or 10,000 square feet on one meter? Can the structure handle new floor plans? – Kristin Geenty, The Geenty Group, Realtors

2. Potential To Add Bedrooms

I’m always looking for a way to add bedrooms. If the building has a number of one-bedroom apartments, and they’re all over 600 square feet, odds are, you can add a bedroom to each. This will fetch you 10-20% more rent per unit. I once bought a two-bedroom vacation rental and turned it into a four bed that could sleep 14. – David Friedman, Knox Financial

3. Replacement Cost And Improvements

The two most important aspects to consider are replacement cost and improvements associated with preparing the warehouse to lease-up ready condition. Assessing replacement cost allows an investor to evaluate if newer construction may impact the subject property’s vacancy and downtime. Assessing improvement costs allows you to underwrite the return on investment, once the asset is stabilized. – Adam Abushagur, TAG Industrial | Marcus & Millichap

4. Deferred Maintenance

Of course, the location and income potential are key, but if it passes those tests then determining how much deferred maintenance there is, if any, can make or break a deal. Adding the total maintenance and repair costs required to make a property leasable will give you the true acquisition cost, so you can determine what to offer on a property to get the return you are targeting. – Catherine Kuo, Elite Homes | Christie’s International Real Estate

5. Location

Location is critical because no matter how much you improve a property, you can never improve its location. There’s more downside protection to buying a house in a great location if the market turns bad. Demand always exists for a property in the right location. In the Bay Area, older homes and small multifamily buildings near BART lines can be in disrepair, while remaining in high demand. – Colin Wiel, Mynd – Property Management

6. Designated Historic District Location

It is important to determine if an older building is located in a designated historic district. Buildings located in historic districts often come with restrictions on materials that are permitted to rehab the building. Older buildings located in historic districts often restrict the use of vinyl windows and require wood windows. Restrictions like this can cut into your budget quite quickly. – Ben Grise, InvestWithBen.com